Suppose the actual price level is less than the expected price level reflected in long-term contracts.How will profits and output be affected, all things equal?
A) Firms will find production more profitable than they had expected, and will increase the quantity of output supplied.
B) Firms will find production less profitable than they had expected, and will decrease the quantity of output supplied.
C) Firms, because they are making less profit than they had expected, will increase the quantity of output supplied.
D) Resource owners, because they are making a lower profit than they had expected, will decrease the quantity of output supplied.

Question

Suppose the actual price level is less than the expected price level reflected in long-term contracts.How will profits and output be affected, all things equal?  
A) Firms will find production more profitable than they had expected, and will increase the quantity of output supplied. 
B) Firms will find production less profitable than they had expected, and will decrease the quantity of output supplied. 
C) Firms, because they are making less profit than they had expected, will increase the quantity of output supplied. 
D) Resource owners, because they are making a lower profit than they had expected, will decrease the quantity of output supplied.

Quizplus · Accepted Answer

When the actual price level is less than expected, firms receive lower revenues than anticipated, making production less profitable, leading to a decrease in the quantity of output supplied.

Suppose the Actual Price Level Is Less Than the Expected